Volatility Detection in a Non-Trading Security&#39;s Price Quotation

ABSTRACT

To ensure that a security does not experience large fluctuations in price after being released from a halt or an IPO, a volatility detection process is used to monitor a pre-release stability of the security based on pre-release orders to buy and orders to sell. These pre-release orders to buy and orders to sell establish an equilibrium price, a cross price. A security is released only when the cross price has been stable for a predetermined period of time prior to the release.

BACKGROUND

Electronic equity markets collect, aggregate and display tradeinformation to market participants. Market participants initiate tradesof securities by sending trade information to the electronic market onwhich the securities are traded. The trade information includescontinuous orders for execution during a market trading session.

A halted security is a previously traded security for which no tradingoccurs for a defined period of time. Halts are ordered by a marketregulator or are otherwise operationally initiated. For example, MarketWatch monitors securities and based on the new dissemination ofinformation may order a halt. An initial public offering (IPO) issue isan initial offering of shares of a security to the public. In someexamples, an initial public offering is done on an exchange but thisneed not necessarily be the case. For an IPO issue, trading commences atthe time of the IPO. A halt cross is a process for determining the pricefor which a security is executed at the opening of trading for a haltedsecurity or for an IPO issue.

SUMMARY

Before a security is released for trading, the volatility in prices ofquotations for the security is determined and the security is releasedfor trading when the determined volatility is below a threshold. Therelease of the security is delayed if the detected volatility in thesecurity's price quotations exceeds the threshold. Additionally,volatility is detected in prices of quotations for an initial publicoffering issue before the issue is released for trading. The time forvolatility detection is extended if the detected volatility exceeds thethreshold and volatility is detected over a period of time. At the endof this period of time, the security is released if volatility is lessthan the threshold.

In some examples, the volatility is calculated as a variance in theprices of quotations for the security. The variance is measured as apercentage value or in absolute terms. The variance in the pricequotations of the security prior to the release of the security iscalculated at discrete intervals until the variance is less than thethreshold.

The details of one or more embodiments of the invention are set forth inthe accompanying drawings and the description below. Other features,objects, and advantages of the invention will be apparent from thedescription and drawings, and from the claims.

DESCRIPTION OF DRAWINGS

FIG. 1 is a block diagram of a market system.

FIG. 2 is a logic view of functions in the in the Quote/Order CollectorFacility.

FIG. 3 is a diagram of a Pre-Cross Period.

FIG. 4 is a block diagram of the volatility detection process.

FIG. 5 is a block diagram of periods within the volatility detectionprocess.

FIG. 6 is a diagram of a computing system that implements a method ofdetecting volatility.

DETAILED DESCRIPTION

Referring to FIG. 1, an electronic market 10 is shown as an example of atrading platform. Numerous other trading platforms are used, includingplatforms that facilitate trading in markets and exchanges. Theelectronic market 10 includes client systems 12 that access a centralquote/order collector facility 20. In some examples, the client systems12 are broker/dealer systems 12 a, electronic communication networks(ECN's) 12 b, market-maker(s) system(s) 12 c, and other exchanges 12 d.In one example, the connections use Nasdaq® protocols such as SelectNet®and Small Order Execution System® (SOES®) The client systems 12 includea processor, memory and a storage device, e.g., a client workstation orpersonal computer (all not shown) that can include a client process toenter quotes/orders into the electronic market systems (e.g., SOES® andSelectNet®) to deliver executions or orders to a market that is coupledto a clearing system 16 and a reporting system 18. It also causesdelivery of executions or routing of orders to the ECN's 12 b, dependingon the status of the ECN, and routing of orders to other markets andexchanges 12 d. The quote/order collector facility 20 is comprised ofone or preferably a plurality of server computers generally denoted as22 including a processor 22 a, main memory 22 b and storage 22 c. Thestorage system 22 c includes quote/order collector process 25 that isexecuted in memory 22 b.

The quote/order collector facility (OCF) 20 collects pre-tradeinformation in the form of quotes or orders. The distinction between aquote and an order depends on several factors. For example, each marketmaker typically sends a two-sided proprietary quote, i.e., a quote thatrepresents its own trading interest for both buy and sell sides of amarket, or an agency quote that represents trading interest of asponsored entity. If one proprietary quote of a sponsored entity is sentit could be considered one order. If one agency quote is sent it alsocould be considered one order. If an agency quote reflects anaggregation of more than one agency order, however, the aggregate agencyorder is considered a quote. Entering quotes are limited to registeredmarket makers 12 c and ECNs 12 b and possible UTP Exchanges 12 d.

For any given stock, a registered market maker or ECN directly enters anon-marketable order i.e., quote into the quote/order collector facility(OCF) 20 on behalf of its customer account, or it sponsors the directentry of an order by its customer. All sponsored quotes are sent to thequote/order collector facility 20 under the name of the sponsoringmarket maker or ECN. In some embodiments, registered market makers orECNs are permitted to submit an unlimited number of non-marketablequotes to the system 20.

The quote/order collector facility 20 receives quotes, liability orders,(non-liability orders) and directed orders from market participants. Thequote/order collector facility 20 allows a quote/order to be displayedin the market, and also allows for marketable orders to be executed orrouted to market participants.

Referring to FIG. 2, the quote/order collector process (OCP) 25 isshown. The quote/order collector process 25 provides transmission ofmultiple orders or quotes at multiple price levels by Quoting MarketParticipants to a quotation manager 26 a. The quote/order manager 26 aprovides a unified point of entry of quotes and orders from disparatedelivery systems into the quote/order collector facility 20 to accessquotes/orders displayed (as either attributable or non-attributable) inboth the aggregate montage and current quote montage. The quote/ordermanager 26 a manages multiple quotes/orders and quotes/orders atmultiple price levels and uses a montage manager 26 b to display (eitherin the Aggregate montage or in the current quote montage) theorders/quotes consistent with an order's/quote's parameters. The ordercollector process 25 also includes an internal execution process manager26 c to match off executions for quoting market participants at the bestbid/offer. The order collector system 20 also includes an orderrouting/execution manager 26 d to provide a single point delivery ofexecutions or routing of orders, which substantially eliminatespotential for dual liability. That is, order collector process 25maintains the order routing and executions functionality available inthe SOES® and SelectNet® systems. The order collector process 25 alsoincludes a lock/cross manager 26 e, and an odd lot execution manager 26f and a quote update manager 26 g.

The Quote/Order Collector Facility 20 collects quotes and orders duringa period of nontrading, referred to as the Pre-Cross Period 30, asillustrated in FIG. 3. During the times that the markets are open,securities, such as halted securities and IPO issues, are not traded fornumerous reasons. In the case of a halted security, trading is haltedwhen marketplace events cause volatility in the security's price,resulting in a trading halt. During the trading halt, price quotationsand orders of the security are not generally monitored to calculatetheir volatility. However, monitoring is resumed during the QuotationOnly Period, occurring towards the end of the Pre-Cross Period 30. Whenthe level of volatility is acceptable, the security is released andtrading resumes. Trading halts prevent large fluctuations in thesecurity's price, allowing the security's price to remain stable duringtrading. For example, Federal Drug Administration (FDA) approval of acompany's product causes volatility in the company's securities due toincreased demand for the securities initially after announcement of theapproval. Then, as the market absorbs the announcement, demand for thesecurity drops, causing the security's price to settle at a lower range.Therefore, trading will be halted during the period of volatility. Inthis example, if the FDA makes its announcement at 8:15 am, a tradinghalt for that company's security could occur between 8 am and 10 am, ifthe market is able to fully absorb the announcement in two hours suchvolatility will have ceased upon trade resumption.

After a trading halt, the price at which the security opens isdetermined by a halt cross process. The halt cross process determinesthe security's equilibrium, re-opening price by calculating anintersection of the security's price quotation demand curve with itsquotation supply curve.

In the case of an IPO issue, the halted security process is replicatedexcept that the IPO issue is not halted, because it has not yet beguntrading. Therefore, instead of monitoring quotations for the securityduring the halt period, quotations for the IPO issue are monitored priorto the IPO release. This is done to ensure that once released, the IPOissue is stable and not subject to price volatility. An IPO crossdetermines the price at which the IPO issue opens using the proceduredescribed above. Hereafter, the term Halt Cross to refers to a crossthat takes place for both a halted security and an IPO issue.

Referring to FIG. 3, in some embodiments, for either a halted securityor an IPO issue, the Pre-Cross Period 30 has at least three components:(1) the Pre-Quotation Period 32; (2) the Quotation Only Period 34; and(3) Trade Resumption 38. In the case of a halted security, thePre-Quotation Period 32 is sometimes referred to as the Halt Period,because trading is ceased (i.e. “halted”) during this time.

During the Pre-Quotation Period 32, the entry of quotations and ordersis prohibited. During the Quotation Only Period 34, quotes and ordersare entered, entered quotes and orders are cancelable, and an indicativecrossing price and imbalance information are disseminated, but noexecutions occur. An event, referred to as the Quote Resumption Event36, triggers the start of the Quotation Only Period 34 by communicatingwith a trading platform when the appropriate time for quote resumptionarrives. The Quote Resumption Event 36 specifies the time during thePre-Cross Period 30 that the trading platform begins acceptingquotations and orders. In some embodiments, the Quote Resumption Event36 is measured with reference to the Pre-Cross Period 30, such as 5minutes after the beginning of the Pre-Cross Period 30, or at afractional point in time, such as after ⅔ of the Pre-Cross Period 30 haselapsed. In some examples, the time set for the Quote Resumption Event36 depends on numerous factors and whether an IPO issue or haltedsecurity is being released. For a halted security, the time of newsdissemination, the nature of the disseminated news such as its subjectmatter or whether it concerns a complex matter, and the amount of timenecessary for analysts and other market participants to consume theinformation factor into the determination of the Quote Resumption time.For an IPO issue, factors such as market health, potential markethostility to the IPO issue, the amount of time an underwriting syndicaterequires to determine an IPO price, and the time of the day during whichan IPO can occur determine the Quote Resumption time.

With the start of the Quotation Only Period 34, the market participantsreceive a message, alerting them to the platform's acceptance ofquotations and orders. In some examples, the Quotation Only Period 34for IPO issues and halted securities differs. In some examples, theQuotation Only Period 34 for IPO issues is 15 minutes and for haltedsecurities is 5 minutes. In some embodiments, quotations and ordersplaced during the Quotation Only Period 34 are collected and stored inthe quote/order collector facility 20.

The time at which a halted security or an IPO issue resumes or beginstrading is referred to as Trade Resumption 38. Trade Resumption 38 marksthe end of the Pre-Cross Period 30, because once the security beginstrading it is no longer in a halted or IPO state. The time for TradeResumption 38 is determined by numerous factors and is variable. In someexamples, Trade Resumption 38 occurs at a pre-defined period of timeafter Quote Resumption and varies based on the type of security, such asa halted one or an IPO issue. However, such variation need not occur. Insome examples, time for Trade Resumption 38 is generated automaticallybased on automatic monitoring of market conditions. In other examples,it is manually calculated and entered into the trading platform.Additionally, for either a halted security or an IPO issue, pricevolatility and an imbalance of shares in an IPO/Halt cross delays thetime for Trade Resumption.

For a halted security, in one example, the time set for Trade Resumptionis 5 minutes after Quote Resumption. However, other Trade Resumptiontimes exist if more or less time accurately reflects the length of timefor volatility to subside. In the above FDA example, the pharmaceuticalcompany decides that 30 minutes is an appropriate length of time toallow the market to absorb the new information. Therefore, TradeResumption 38 has a value of either 8.30 am or 30 minutes after the haltbegan. For an IPO issue, in one example, the trading begins 15 minutesafter Quote Resumption, because this is sufficient time to accuratelyassess an IPO's volatility. However, other factors affect the TradeResumption time such as whether an underwriter determines that a delayis necessary or price dislocation has occurred. Additionally, in one IPOexample, the issuer of the IPO, such as an investment bank or theunderlying company, determines the Trade Resumption time.

Trading resumes when real time equals the time specified for TradeResumption 38. In some examples, a Trade Resumption 38 eventcommunicates with the trading platform that trading should begin and theplatform sends a message to market participants signaling the resumptionof trading.

At the end of the Quotation Only Period 34, the trading platformperforms a volatility analysis based on all quotes and orders enteredfor the halted security or the IPO issue, calculating the equilibriumprice for buy and sell quotations at varying points of time during theQuotation Only Period 34. This volatility analysis determines whetherthe halted security of IPO issue resumes or begins trading. Volatilityis detected through calculations based on data contained in anelectronic message referred to as the Net Order Imbalance Indicator(NOII). During the Quotation Only Period 34, the NOII is generated andcontains information about the halted security or IPO issue, such aspaired volume, imbalance volume, the far indicative opening price andthe near indicative opening price, as shown in Table 1 and Table 2(below). The NOII is disseminated to NADAQ members, service bureaus anddata vendors, who redistribute the information to their customers andbroker dealers. The frequency of the NOII's dissemination is predefined.In one example, the NOII is disseminated every five seconds. However,its dissemination frequency varies based on the amount of time marketparticipants require to react to the information. For example, if themarket is largely electronic, then the reaction time to such informationis small and market participants can consume frequent dissemination ofinformation. Conversely, if the market is largely non-electronic, thenparticipants require more time to consume information and thereforefrequent dissemination of information is not properly consumed.

In some examples, the NOII for the Halt Cross is disseminated every fiveseconds throughout the Quotation Only Period 34 by NASDAQTRADER.com,NASDAQ Total View and the NASDAQ application programming interface. TheNOII for the Halt Cross contains data elements reflecting the currentstate of the market leading into the Cross.

Table 1 below shows an exemplary IPO/Halt Net Order Imbalance IndicatorMessage Format. The Halt Cross data elements reflect the current stateof the market. These elements include (1) the Inside Match Price, whichis the price at which the maximum number of shares of eligible quotesand orders are paired; (2) the number of shares represented by eligiblequotes and orders that are paired at the Inside Match Price; (3) thenumber of shares in any imbalance at the Inside Match Price; and (4) thebuy/sell direction of that imbalance at the Inside Match Price.

TABLE 1 Number of Paired Number of Shares Cross Type Issue Symbol Sharesof Imbalance Imbalance Side Inside Match Price Far Indicative NearIndicative No Indicative Price Variation Clearing Price Clearing PriceClearing Price Indicator

In one example, table 2 below depicts details of the NOII that containsan indicative clearing price range at which the Halt Cross would occurif the Halt Cross were to occur at that time. The two indicative pricesin that range and the Inside Match Price have identical values because,in the absence of order types unique to the IPO and Halt Cross, theInside Match Price and indicative price range are calculated based uponthe same order set, resulting in the same price output. Table 2 depictsan exemplary IPO/Halt Order Imbalance Indicator Message DisseminationRecord.

TABLE 2 Field Format Description Code Value Cross Type 1 byte This1-byte alphanumeric field will O Regular Opening Alphanumeric denote thetype of NASDAQ cross Cross event for which the NOII message is IIntra-day Opening being generated. for Single Security (IPO and HaltSituations) C Regular Closing Cross Issue Symbol 7 bytes, The IssueSymbol field identifies Alphanumeric. the symbol assigned by NASDAQ fora given security. Number of 12 bytes, This field indicates the totalnumber Shares Paired Numeric. of shares that are currently eligible tobe matched at the Inside Match Price. Number of 12 bytes, This fieldwill only be populated Shares of Numeric. when there is a Market Buy orImbalance Market Sell condition, indicating that there are unexecutableMarket Priced shares on one side or the other. If all Market Pricedshares will be executed, this field will be zero as defined by theImbalance Shares Computation section below. Imbalance 1 byte, This fieldindicates the market side B Buy Side Side Alphanumeric. of theimbalance. The allowable Imbalance values are as follows: S Sell SideImbalance N No Imbalance O No marketable Orders in SuperMontage, thus noimbalance. Inside Match 10 bytes, This field indicates the NASDAQ PriceNumeric. Inside Price at which the Number of Paired Shares and theNumber of Shares of Imbalance were calculated. this price will beidentical to the Near and Far Indicative Clearing Prices. Far Indicative10 bytes, This field indicates the price level at Clearing Numeric.which the order book would clear Price based on the current quotes andorders. The format of will be $$$$$.dddd. Near 10 bytes, This fieldindicates the price level at Indicative Numeric. which the order bookwould clear Clearing based on the current quotes and Price orders. Theformat of will be $$$$$.dddd. No Indicative 1 byte; This field indicateswhen Market B Market Buy Clearing Alphanumeric. orders cannot be fullypaired against A Market Sell Price offsetting orders at either the NearSpace Not applicable, Indicative Clearing Price or the Far IndicativeClearing Indicative Clearing Price. The Prices are present allowablevalues are as follows: Price 1 byte, Indicates the absolute value of theCode Value Variation Alphanumeric percentage of deviation of the NearSpace Price Variation Indicator Indicative Price to the projectedIndicator cannot be Inside Match Price. Since there is calculated nodifference between Inside Match Price and the Near Indicative Price,this indicator cannot be accurately calculated.

The NOII disseminated prior to the Halt Cross differs in several waysfrom those disseminated prior to the Opening and Closing Crosses, asdescribed in U.S. patent application Ser. No. 11/077,503 pertaining toopening crosses in an electronic market and U.S. patent application Ser.No. 10/835,510 pertaining closing crosses in an electronic market. TheHalt Cross NOII is based on different order types. The NOII for theOpening and Closing Crosses include information about On Open and OnClose order types, in addition to quotations and regular and extendedhours orders for each time in force (Total Day, Day, Good-till-Canceled,and Immediate or Cancel). The NOII for the Halt Cross includesquotations, regular hours orders, and extended hours orders. The NOIIfor the Halt Cross disseminates the same value for the Inside MatchPrice, Near Indicative Clearing Price and Far Indicative Clearing Price.The Inside Match Price is the price at which the Number of Paired Sharesand the Number of Shares of Imbalance are calculated, and is discussedfurther below. The Far Indicative Clearing Price and the Near IndicativeOpening Price are the clearing prices for all orders in the book at amoment in time. That is, unlike during opening and closing of trading,during a trading halt, there is no firm inside quotation (firm bid andfirm offer prices) and the inside can be locked (the bid being equal tothe offer) or crossed (the bid being higher than the offer). Inaddition, the Halt Cross does not include On Open and On Close orders.On Open and On Close orders are available to absorb liquidity during theOpening and Closing Crosses and do affect the Near and Far IndicativeClearing Price data elements prior to the Opening and Closing Crosses.Due to these differences, calculating the Near and Far IndicativeClearing Prices provides ambiguous data. Thus, Near and Far IndicativeClearing Price fields are disseminated with identical values to theInside Match Price in order to avoid requiring market participants tore-program their systems to accept a different NOII.

The Inside Match Price (and thus the Near and Far Indicative ClearingPrices) are calculated as follows. The system determines the price(s)that maximize the number of shares paired. If more than one such priceexists, the system selects the price that minimizes the imbalance ofshares unpaired, and that does not leave unexecuted shares at a superiorprice. If more than one price satisfies both conditions, the type oftrading halt necessitating the Halt Cross, such as an IPO, isdeterminative. When the Halt Cross is for an IPO halt, if more than onesuch price satisfies the above conditions, the system selects the pricethat minimizes the price differential from the Issuer's Initial PublicOffering price, which is found in the previous day's close field. Forany other halt, if the stock has already been opened for that day andmore than one price satisfies the above conditions, the system selectsthe price that minimizes the price differential from the last marketcenter execution prior to the halt. If the security has not been openedfor that day yet and more than one such price exists, the system selectsthe price that minimizes the price differential from the previousOfficial Closing Price.

Referring to FIG. 4, in order to facilitate the orderly opening of ahalted security or IPO issue, the volatility in its price quotations aremonitored and Trade Resumption 38 occurs when the volatility reaches anacceptable level. Numerous computing environments support suchvolatility detection and monitoring, such as the computing environmentillustrated in FIG. 6. Therefore, the volatility of the security's pricequotations are measured against a specified threshold 46, and TradeResumption 38 is delayed if volatility exceeds the threshold 54. Thevolatility detection and delay are based upon the data contained in theNOII, which is disseminated every five seconds throughout the QuotationOnly Period 34.

Volatility detection occurs during the Quotation Only Period 34. In someexamples, volatility detection takes place at a time closely precedingthe time for Trade Resumption 38. An event referred to as the VolatilityDetection Event 40 is programmed with the time that volatility detectionbegins. Volatility detection starts when real time equals the value ofthe Volatility Detection Event 40. In some examples, the VolatilityDetection Event 40 has a value of, e.g., five seconds prior to the timescheduled for Trade Resumption 38. Because volatility is calculated byexamining the value of data points 42, 44 at varying times during theQuotation Only Period 34, the Volatility Detection Event 40 also setsthe times for sampling of data points 42, 44. In some examples, thesetimes are defined with reference to the time for Trade Resumption 38. Insome embodiments, the data points are the Inside Match Pricesdisseminated every five seconds with the NOII and the VolatilityDetection Event 40 specifies which Inside Match Prices are sampled.Therefore, in this example, the Volatility Detection Event 40 specifiesthe data points are the Inside Match Price from the third to last NOIIbefore Trade Resumption 38 (T−15 seconds to Trade Resumption) and theInside Match Price from the NOII immediately prior to Trade Resumption38 (T−1 seconds to Trade Resumption).

Volatility of price quotations of the security is calculated bydetermining the price differential in the security's price quotationsbetween the two data points 42, 44. In some examples, the pricedifferential is calculated as a percentage value or as an absolutevalue. The price differential is compared to a threshold valueindicative of an acceptable level of volatility in the price quotations.In some examples, the threshold is a predetermined absolute price changeor a percentage variance, such as 10% or 50 cents. The threshold isadjustable based on numerous market conditions such as large point dropsin indices and overall market volatility. In some examples, after athreshold adjustment, market participants are notified, allowing them togauge the relative stability of stock after it has opened. In oneexample, market participants are notified using email alert systems.However, the amount of the threshold adjustment need not be listed inthe email. Instead, exchange associates could communicate the thresholdadjustment directly to market participants. If the price differentialexceeds the threshold value, the halted security's or IPO issue's pricequotations are too volatile and trading does not resume. Instead, thehalt is prolonged and the Trade Resumption 38 is delayed 54 to allowmonitoring of the quotations of the security over an extended period oftime until volatility has dropped to an acceptable level. The period oftime that the Quote Resumption Event 36 is extended for is referred toas “Volatility Delay” 52. Monitoring time is increased by extending thetime for the Quote Resumption Event 36 by the Volatility Delay, thusgiving the market more time to absorb new market information. In thiscase, additional volatility detection is performed during the length ofthe Volatility Delay. The Volatility Delay also extends the time for theTrade Resumption 38. In some examples, when a Volatility Delay occurs, aDelay Notification is issued to market participants.

The length of the Volatility Delay depends on many factors such aswhether volatility is detected in a halt or IPO issue and relativemarket volatility in comparable indices or related sectors. In someembodiments, the Volatility Delay for an IPO is five minutes, becausethe underwriting syndicate group requires time to ensure that the IPOissue is accurately priced. In some embodiments, the Volatility Delayfor a halted security is one minute, because the pricing of a haltedsecurity is a reaction to market participants' supply and demand and isnot dependent on an underwriting component. In some embodiments, theVolatility Delay is automatically machine generated based on marketfactors or in other embodiments it is set by an analyst examining marketindices such the NASDAQ Composite, the Dow Jones Industrial Average, theCommodity Research Bureau Index and the Goldman Sachs Commodity Index todetermine if market volatility has increased.

During a Volatility Delay, volatility is calculated using data pointsgenerated within the volatility delay or a mixture of datapoints, somefrom the Volatility Delay period and some from the prior Quotation OnlyPeriod 34. The volatility detection process described above is repeated,comparing calculation volatility to the threshold. After detection,trading is further delayed 54 if the volatility level still exceeds thethreshold. Analogously, trading resumes 38 if the volatility level isbelow the threshold.

In some examples, no Volatility Delay occurs. For example, when thecalculated volatility is below the threshold, trading resumes at thescheduled Trade Resumption 38 time and no extension in the QuoteResumption Event 36 or Trade Resumption 38 is triggered.

In some examples, the number of Volatility Delays is limited, ensuringthat the security is eventually released. This limitation is referred toas the Maximum Volatility Sampler. A counter, referred to as theVolatility Sampler, tracks each occurrence of Volatility Detection 46.After every Volatility Detection 46, the value of the Volatility Sampleris incremented by one 48. After incrementing 48, the value of theVolatility Sampler is compared to the value of the Maximum VolatilitySampler 50. Once the Maximum Volatility Sampler 50 is reached, TradeResumption 38 begins, even if volatility in the security's pricequotations exceeds the threshold. However, if the value of theVolatility Sampler is less than the value of the Maximum VolatilitySampler 50 then both the Quotation Only Period 34 and Trade Resumption38 are extended by the Volatility Delay 52, 54. In some examples, thevalue of the Maximum Volatility Sampler differs for an IPO issue and ahalted security or based on the company underwriting the halted securityor IPO issue. This is because different underwriters have varyingsensitivities to volatility or perhaps volatility is less of a concernin certain industry sectors or is more problematic in an IPO issuesituation than in a halted security situation.

In one example, referring to FIG. 5, the value of the Volatility Samplerfor an IPO issue is three. Therefore, volatility is sampled at mostthree times (60, 62, 64) before the IPO issue is released. After theinitial Quotation Only Period 34 (Quotation Only Period 1), the pricequotations of the IPO issue are sampled. If volatility of quotations forthe IPO issue exceeds the threshold, then the Volatility Delay extendsthe Quotation Only Period 34, producing a new Quotation Only Period 2and a new Trade Resumption 2. Concurrently, the value of the VolatilitySampler is incremented by one 48 to a value of one. Volatility detectionis repeated at the end of the Quotation Only Period 2 62 and a secondVolatility Delay occurs if volatility still exceeds the threshold. Thesecond Volatility Delay extends the time of Quotation Only Period 2,producing a Quotation Only Period 3 64, and the value of the VolatilitySampler is incremented by one to a value of two. If volatility exceedsthe threshold value at the end of the Quotation Only Period 3 64, theVolatility Sampler is incremented to a value of three, equaling thevalue of the Maximum Volatility Sampler. Therefore, after the thirdvolatility detection cycle, volatility detection stops and tradingresumes.

In some examples of a halted security, the value of the MaximumVolatility Sampler is two, allowing for two Volatility Detection Cycles.In some examples, the value of the Volatility Delay is one minute. Thus,if after the first cycle, detected volatility exceeds the thresholdvalue, then the Volatility Sampler is incremented to a value of one anda Volatility Delay occurs. Therefore, at the end of the one minuteVolatility Delay, volatility is again detected and the VolatilitySampler is incremented to a value of two. After this second cycle, ifvolatility still exceeds the threshold value, trading resumes, becausevolatility detection has occurred twice.

When the Quotation Only Period 34 ends, a Trade Resumption message issent to market participants, notifying them of the opening of the IPOissue or halted security. To discourage gaming by market participants,the trade is executed at a random time point during a 15 second periodfollowing Trade Resumption. This ensures that market participants do notmanipulate the security's price, such as by inflating it, immediatelyprior to trade execution, because market participants do not know whenduring the 15 second period the trade will actually execute. When theTrade Resumption notification has been sent, the system conducts theHalt Cross. The Halt Cross is the process for determining the price atwhich a security is executed at the open of trading for a haltedsecurity or an IPO issue.

The Halt Cross finds the price that maximizes the number of sharesexecuted. If more than one price satisfies this condition, the pricethat minimizes the imbalance of shares unexecuted and does not leaveunexecuted shares at a superior price is determined. If more than oneprice satisfies this condition also, the type of cross, such as an IPOor another halt, is determinative. For an IPO, if more than one pricesatisfies the above conditions, the price that minimizes the pricedifferential from the Issuer's Initial Public Offering price, found inthe previous day's close field, is selected. For any other halt, if thesecurity has already been opened for that day and more than one pricesatisfies the above conditions, the price that minimizes the pricedifferential from the last Nasdaq market center execution prior to thehalt is selected. If the security has not opened for that day and morethan one such price satisfies the above conditions, the price thatminimizes the price differential from the previous Closing Price isselected.

All orders are executed in strict price/time priority starting with thedisplayed quotation size and then the reserve quotation size at the mostaggressive price level, and then moving to successive price levels. Allexecutable orders are executed at the Halt Cross price. Orders andquotations subject to automatic execution participate in the Halt Cross.

For IPOs and other halts where a security has not previously openedduring the trading day, the Halt Cross execution is reported to Nasdaq'strade reporting system with SIZE as the contra party on both sides ofthe trade, and then transmitted to the consolidated tape. SIZE is aspecial MPID (market participant identifier) that represents theaggregate size of all non-attributable quotes/orders at the bestbid/best offer displayed in a quote montage (not shown) for themarket/exchange or other trading venue along with the other MPIDs forquoting market participants that are also displaying attributable sizeat the inside price in the market/exchange or other trading venue TheHalt Cross price and the associated paired volume are disseminated viathe UTP Trade Data Feed (“UTDF”) as a bulk print and on the Nasdaq IndexDissemination Service (“NIDS”) and the Nasdaq Application ProgramInterface as the Nasdaq Official Opening Price (“NOOP”). For halts wherea security has already opened during the trading day, the Halt Cross isreported as a single trade, but is not identified as a bulk print and isnot disseminated as the NOOP. When the Halt Cross is complete, theexecution functionality opens for regular trading.

Referring to FIG. 6, a computing system that implements volatilitydetection includes a processor 70, memory 72, disk controller 74 and aninput/output (I/O) controller 76 all linked by a common bus. In someexamples, the computing system also includes a disk drive 78, a monitoror other communication output device or interface 80 and a keyboard orother communication input device or interface 80.

A number of embodiments of the invention have been described.Nevertheless, it will be understood that various modifications may bemade without departing from the spirit and scope of the invention.Accordingly, other embodiments are within the scope of the followingclaims. It is to be understood that using volatility detection asdescribed herein occurs across different types of markets, such assecurities, bonds, derivatives, futures, commodities markets and otherfinancial markets.

1. A computer implemented method for releasing securities for trading,the method comprising: determining volatility in prices of quotationsfor a security before the security is released for trading; andreleasing the security for trading when the determined volatility isbelow a threshold.
 2. The method of claim 1 further comprising: delayingthe release of the security if the detected volatility in the security'sprice quotations exceeds the threshold.
 3. The method of claim 1 furthercomprising: detecting volatility in prices of quotations for an initialpublic offering issue before the issue is released for trading.
 4. Themethod of claim 1 further comprising: calculating the volatility as avariance in the prices of quotations for the security.
 5. The method ofclaim 4 in which the variance is measured as a percentage value.
 6. Themethod of claim 4 in which the variance is measured in absolute terms.7. The method of claim 2 further comprising extending the time forvolatility detection if the detected volatility exceeds the threshold.8. The method of claim 2 comprising detecting volatility over a definedperiod.
 9. The method of claim 8 comprising releasing the security atthe end of the defined period.
 10. The method of claim 8 comprisingreleasing the security during the defined period if volatility is lessthan the threshold.
 11. The method of claim 4 wherein the variance inthe price quotations of the security prior to the release of thesecurity is calculated at discrete intervals until the variance is lessthan the threshold.
 12. The method of claim 1 further comprising:releasing the security if the detected volatility is below thethreshold.
 13. A computer program product embodied on a readable mediumfor releasing securities for trading the computer program productcomprising instructions for causing a computer system to: determinevolatility in prices of quotations for a security before the security isreleased for trading; and release the security for trading when thedetermined volatility is below a threshold.
 14. The computer programproduct of claim 13 wherein the computer program product comprisesinstructions to: delay the release of the security if the detectedvolatility in the security's price quotations exceeds the threshold. 15.The computer program product of claim 13 wherein the computer programproduct comprise instructions to: calculate the volatility as a variancein the prices of quotations for the security.
 16. The computer programproduct of claim 15 wherein the variance is measured as a percentagevalue.
 17. The computer program product of claim 15 wherein the varianceis measured in absolute terms.
 18. The computer program product of claim14 wherein the computer program product comprises instructions to:extend the time for volatility detection if the detected volatilityexceeds the threshold.
 19. The computer program product of claim 14wherein the computer program product comprises instructions to: detectvolatility over a defined period.
 20. The computer program product ofclaim 19 wherein the computer program product comprises instructions to:release the security at the end of the defined period.
 21. The computerprogram product of claim 19 wherein the computer program productcomprises instructions to release the security during the defined periodif volatility is less than the threshold.
 22. The computer programproduct of claim 15 wherein the variance in the price quotations of thesecurity prior to the release of the security is calculated at discreteintervals until the variance is less than the threshold.
 23. Thecomputer program product of claim 13 wherein the computer programproduct comprises instructions to release the security if the detectedvolatility is below the threshold.
 23. The computer program product ofclaim 13 wherein the computer program product comprises instructions todetect volatility in prices of quotations for an initial public offeringissue before the issue is released for trading.
 25. An apparatuscomprising: a computing device that is configured to determinevolatility in prices of quotations for a security before the security isreleased for trading; and release the security for trading when thedetermined volatility is below a threshold.
 26. The apparatus of claim25 further comprising the computing device facilitating a delay in therelease of the security if the detected volatility in the security'sprice quotations exceeds the threshold.
 27. The apparatus of claim 25 inwhich the computing device detects volatility in prices of quotationsfor an initial public offering issue before the issue is released fortrading.
 28. The apparatus of claim 25 in which the computing devicecalculates volatility as a variance in the prices of quotations for thesecurity.
 29. The apparatus of claim 28 in which the computing devicecalculates the variance as a percentage value.
 30. The apparatus ofclaim 28 in which the computing device calculates the variance inabsolute terms.
 31. The apparatus of claim 26 in which the computingdevice extends the time for volatility detection if the detectedvolatility exceeds the threshold.
 32. The apparatus of claim 26 in whichthe computing device detects volatility over a defined period.
 33. Theapparatus of claim 32 in which the computing device releases thesecurity at the end of the defined period.
 34. The apparatus of claim 32in which the computing device releases the security during the definedperiod if volatility is less than the threshold.
 35. The apparatus ofclaim 28 in which the computing device calculates the variance in theprice quotations of the security prior to the release of the security atdiscrete intervals until the variance is less than the threshold. 36.The apparatus of claim 25 in which the computing device releases thesecurity if the detected volatility is below the threshold.